Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 106315 

[FR Doc. 2024–31130 Filed 12–27–24; 8:45 am] 

BILLING CODE 4410–09–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[TD 10020] 

RIN 1545–BI22 

Reissuance of State or Local Bonds 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations. 

SUMMARY: This document contains final 

regulations that address when taxexempt bonds are treated as retired for 

certain Federal income tax purposes. 

The final regulations are necessary to 

unify and to clarify existing guidance on 

this subject. The final regulations affect 

State and local governments that issue 

tax-exempt bonds. 

DATES: 

Effective date: These regulations are 

effective on December 30, 2024. 

Applicability date: For dates of 

applicability, see § 1.150–3(f). 

FOR FURTHER INFORMATION CONTACT: 

Zoran Stojanovic, (202) 317–6980 (not a 

toll-free number). 

SUPPLEMENTARY INFORMATION: 

Authority 

This document contains final 

regulations that amend the Income Tax 

Regulations (26 CFR part 1) by adding 

final regulations under section 150 and 

amending the regulations under section 

1001 of the Internal Revenue Code 

(Code) to provide rules for determining 

when tax-exempt bonds are treated as 

retired for purposes of sections 103 and 

141 through 150 of the Code (final 

regulations). 

These final regulations are 

promulgated under the express 

delegation of authority in section 

7805(a) of the Code, which authorizes 

the Secretary of the Treasury or her 

delegate to ‘‘prescribe all needful rules 

and regulations for the enforcement of 

[the Code], including all rules and 

regulations as may be necessary by 

reason of any alteration of law in 

relation to internal revenue.’’ 

Background 

On December 31, 2018, a notice of 

proposed rulemaking (REG–141739–08) 

regarding retirement of tax-exempt 

bonds was published in the Federal 

Register (83 FR 67701) (proposed 

regulations). No public hearing was 

requested or held. Five public 

comments responding to the proposed 

regulations were received and are 

available at https://www.regulations.gov 

or upon request. After careful 

consideration of all the written 

comments, the proposed regulations are 

adopted as amended by this Treasury 

decision in response to such comments 

as described in the Summary of 

Comments and Explanation of 

Revisions. 

1. Overview 

In general, under section 103, interest 

received by the holders of certain bonds 

issued by State and local governments is 

exempt from Federal income tax. To 

qualify for the tax exemption, a bond 

issued by a State or local government 

must satisfy various eligibility 

requirements under sections 141 

through 150 at the time of issuance of 

the bond. If the issuer and holder agree 

after issuance to modify the terms of a 

tax-exempt bond significantly, the 

original bond may be treated as having 

been retired and exchanged for a newly 

issued, modified bond. Similarly, if the 

issuer or its agent acquires and resells 

the bond, the bond may be treated as 

having been extinguished upon 

acquisition and replaced upon resale 

with a newly issued bond. 

The term ‘‘reissuance’’ commonly 

refers to the effect of a transaction in 

which a new bond is deemed to be 

issued in place of an old bond as a 

result of retirement of the old bond 

pursuant to such an exchange or 

extinguishment. In the case of a 

reissuance, the reissued bond must be 

retested for qualification under sections 

103 and 141 through 150. The 

reissuance of an issue of tax-exempt 

bonds may result in various negative 

consequences to the issuer, such as 

changes in yield for purposes of the 

arbitrage investment yield restrictions 

under section 148(a), acceleration of 

arbitrage rebate payment obligations 

under section 148(f), and change-in-law 

risk. 

2. Tender Option Bonds 

Tender option bonds and variable rate 

demand bonds (collectively, tender 

option bonds) have special features that 

present reissuance questions. 

Specifically, tender option bonds have 

original terms that provide for a tender 

option interest rate mode, as described 

in this paragraph. Issuers of tax-exempt 

bonds often preauthorize several 

different interest rate modes in the bond 

documents and retain an option to 

switch interest rate modes under 

parameters set forth in the bond 

documents. During a tender option 

mode, tender option bonds have shortterm interest rates that are reset 

periodically at various short-term 

intervals (typically, every seven days) 

based on the current market rate 

necessary to remarket the bonds at par. 

In connection with each resetting of the 

interest rate, the holder of a tender 

option bond has a right or requirement 

to tender the bond back to the issuer or 

its agent for purchase at par. Tender 

option bonds generally are structured 

with these short-term features supported 

by put options to enable the bonds to be 

eligible for purchase by tax-exempt 

money market funds pursuant to 17 CFR 

270.2a–7 (Rule 2a–7 under the 

Investment Company Act of 1940). 

Tender option bonds also may have 

interest rate mode conversion options 

that permit the issuer or conduit 

borrower to change the interest rate 

mode on the bonds from a tender option 

mode to another short-term interest rate 

mode or to a fixed interest rate to 

maturity. At the time of a conversion to 

another interest rate mode, the holder of 

a tender option bond typically has the 

right or requirement to tender the bond 

for purchase at par. 

Tender option bonds generally have 

third-party liquidity facilities from 

banks or other liquidity providers to 

ensure that there is sufficient cash to 

repurchase the bonds upon a holder’s 

tender, and they also commonly have 

credit enhancement from bond insurers 

or other third-party guarantors. Upon a 

holder’s exercise of its tender rights in 

connection with either a resetting of the 

interest rate during a tender option 

mode or a conversion to another interest 

rate mode, a remarketing agent or a 

liquidity provider typically will acquire 

the bonds subject to the tender and 

resell the bonds either to the same 

bondholders or to others willing to 

purchase such bonds. 

3. Existing Guidance 

To address reissuance questions 

related to tax-exempt bonds, on 

December 27, 1988, the Department of 

the Treasury (Treasury Department) and 

the IRS published Notice 88–130, 1988– 

2 CB 543, which provides rules for 

determining when a tax-exempt bond is 

retired for purposes of sections 103 and 

141 through 150. Notice 88–130 

provides in part that a tax-exempt bond 

is retired when there is a change to the 

terms of the bond that results in a 

disposition of the bond for purposes of 

section 1001. In addition, Notice 88–130 

provides special rules for retirement of 

certain tender option bonds that meet a 

definition of the term ‘‘qualified tender 

bond.’’ 


ddrumheller on DSK120RN23PROD with RULES1
106316 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

On June 26, 1996, the Treasury 

Department and the IRS published final 

regulations under § 1.1001–3 of the 

Income Tax Regulations (1996 final 

regulations) in the Federal Register (61 

FR 32926). The 1996 final regulations 

provide rules for determining whether a 

modification of the terms of a debt 

instrument, including a tax-exempt 

bond, results in an exchange for 

purposes of section 1001. In recognition 

of a need to coordinate the interaction 

of the prior guidance in Notice 88–130 

with the 1996 final regulations for 

particular tax-exempt bond purposes, 

the Treasury Department and the IRS 

stated their intention to issue 

regulations under section 150 on this 

subject in the preamble of the 1996 final 

regulations. See 61 FR 32930. 

On April 14, 2008, the Treasury 

Department and the IRS published 

Notice 2008–41, 2008–1 CB 742. Like 

Notice 88–130, Notice 2008–41 provides 

rules for determining when a taxexempt bond is retired for purposes of 

sections 103 and 141 through 150 and 

includes special rules for qualified 

tender bonds. While the retirement 

standards provided in these two notices 

are similar, Notice 2008–41 was 

intended to coordinate the retirement 

standards for tax-exempt bond purposes 

with the 1996 final regulations on 

modifications of debt instruments under 

§ 1.1001–3 and to be more administrable 

than Notice 88–130. In order to preserve 

flexibility and to limit potential 

unintended consequences during the 

2008 financial crisis, Notice 2008–41 

permitted issuers to apply either notice. 

Generally, under Notice 2008–41, a taxexempt bond is retired when a 

significant modification to the terms of 

the bond occurs under § 1.1001–3, the 

bond is acquired by or on behalf of its 

issuer, or the bond is otherwise 

redeemed or retired. The notice clarifies 

that, for purposes of these retirement 

standards, the purchase of a tax-exempt 

bond by a third-party guarantor or thirdparty liquidity facility provider 

pursuant to the terms of the guarantee 

or liquidity facility is not treated as a 

purchase or other acquisition by or on 

behalf of a governmental issuer. 

Although these general rules apply to a 

qualified tender bond, Notice 2008–41 

also provides that certain features of 

qualified tender bonds will not result in 

a retirement. In Notice 2008–41, the 

Treasury Department and the IRS 

reiterated their intention to provide 

guidance on the retirement of taxexempt bonds in regulations under 

section 150. 

The proposed regulations provide 

rules for determining when tax-exempt 

bonds are treated as retired for purposes 

of sections 103 and 141 through 150. 

The proposed regulations also amend 

§ 1.1001–3(a)(2) of the 1996 final 

regulations to conform that section to 

the special rules in the proposed 

regulations for retirement of qualified 

tender bonds. 

Summary of Comments and 

Explanation of Revisions 

After consideration of the public 

comments, the Treasury Department 

and the IRS adopt the proposed 

regulations as amended by this Treasury 

decision. This section of the preamble 

discusses the public comments and the 

revisions made in the final regulations 

in response to those comments. 

1. General Rules for Retirement of a 

Tax-Exempt Bond 

The proposed regulations generally 

provide standards for determining when 

a tax-exempt bond is retired for 

purposes of sections 103 and 141 

through 150, including certain special 

rules for determining when qualified 

tender bonds are retired. 

One comment suggested expanding 

the scope of the final regulations to 

cover taxable tax-advantaged bonds, 

such as direct pay build America bonds 

and tax credit bonds, because some of 

those bonds were also issued as tender 

option bonds that would benefit from 

the special rules for qualified tender 

bonds. The authorizations for these 

taxable tax-advantaged bonds, however, 

have been very limited in both time and 

amount, and very few of these bonds 

have been issued as tender option 

bonds. Furthermore, section 13404 of 

Public Law 115–97, 131 Stat. 2054, 2138 

(December 22, 2017), commonly 

referred to as the Tax Cuts and Jobs Act, 

repealed the existing authority in the 

Code for taxable tax-advantaged bonds. 

Because no taxable tax-advantaged 

bonds currently may be issued and very 

few historically have been issued as 

tender option bonds, the Treasury 

Department and the IRS have 

determined that expanding the scope of 

the final regulations to include those 

bonds lacks sufficient justification. 

Accordingly, the final regulations do not 

adopt this comment. 

The proposed regulations generally 

provide that a tax-exempt bond is 

retired if a significant modification to 

the terms of the bond occurs under 

§ 1.1001–3, the issuer or an agent acting 

on its behalf acquires the bond in a 

manner that liquidates or extinguishes 

the bondholder’s investment in the 

bond, or the bond is otherwise 

redeemed (for example, redeemed at 

maturity). 

The final regulations make one 

technical change to the second general 

rule regarding debt extinguishment to 

remove the reference to the 

‘‘bondholder’s investment’’ and thus to 

focus more clearly on the merger of 

interests and attendant extinguishment 

that occurs when an issuer acquires its 

own bond either directly or through an 

agent. 

Two comments recommended 

allowing an issuer to make an election 

to treat a tax-exempt bond as retired and 

reissued under the final regulations. 

These comments noted that it is 

sometimes unclear whether a 

transaction results in the retirement and 

reissuance of a tax-exempt bond. The 

comments described several specific 

situations in which such an election 

could address this uncertainty. The 

Treasury Department and the IRS 

recognize that such an election could 

reasonably reduce the burden on issuers 

in certain specific situations. However, 

the Treasury Department and the IRS 

have concerns that an unrestricted right 

to elect retirement and reissuance of taxexempt bonds could result in 

unintended consequences. In response 

to this comment and to provide 

flexibility to address this issue in 

appropriate, tailored circumstances, the 

final regulations authorize the 

Commissioner to publish guidance in 

the Internal Revenue Bulletin that 

allows issuers to elect to treat taxexempt bonds as retired and reissued in 

specific circumstances for purposes of 

sections 103 and 141 through 150. 

2. Exceptions to Retirement of a TaxExempt Bond 

The proposed regulations provide 

three exceptions to the operation of the 

general rules that limit retirements of 

tax-exempt bonds. Two of these 

exceptions prevent the special features 

of tender option bonds from resulting in 

a retirement. A third exception applies 

to all tax-exempt bonds. 

A. Definition of Qualified Tender Bond 

The first two exceptions in the 

proposed regulations apply to qualified 

tender bonds, which are defined to 

cover tender option bonds that meet 

certain requirements. Specifically, a 

qualified tender bond is subject to 

certain limitations on interest rate, 

timing of interest payments, and 

maturity. A qualified tender bond must 

also include a qualified tender right. 

The proposed regulations generally 

define a qualified tender right as a right 

or obligation of the holder of a bond to 

tender the bond for purchase by the 

issuer, its agent, or another party at a 

purchase price equal to par plus any 


ddrumheller on DSK120RN23PROD with RULES1
Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 106317 

accrued interest. Under the proposed 

regulations, a qualified tender right 

must also require the issuer or its 

remarketing agent to redeem the bond or 

to use reasonable best efforts to resell 

the bond within the 90 days of the 

tender at a purchase price equal to par 

plus any accrued interest. 

Four comments urged the Treasury 

Department and the IRS to amend the 

definition of a qualified tender right in 

the final regulations to allow a bond to 

be resold at a premium or discount price 

relative to the par amount of the bond 

(rather than just at a price equal to par 

as under the proposed regulations) 

when the qualified tender right is 

exercised in connection with a 

conversion of the interest rate mode to 

a fixed rate for the remaining term of the 

bond. The comments noted that, when 

a long-term fixed rate bond is originally 

issued at par, a sustained upward trend 

in interest rates can result in the bond 

having market discount as it is resold in 

the secondary market. If that market 

discount exceeds the permitted de 

minimis amount, the discount will be 

taxed as ordinary income to the holder. 

Premium included in the sale price of 

a long-term fixed rate tax-exempt bond 

serves as a buffer against market 

discount as interest rates rise over time. 

Accordingly, qualified tender bonds 

resold at a premium upon conversion of 

the interest rate mode on the bonds to 

a fixed rate to maturity generally have 

greater market demand and a lower 

yield than they would have if resold at 

par. The comments also noted that, even 

when an issue of fixed rate tax-exempt 

bonds is resold at an aggregate net 

premium price, certain bonds within the 

issue may be resold at a discount. The 

comments further noted that Notice 

2008–41 permitted qualified tender 

bonds to be resold at a premium or a 

discount upon conversion of the interest 

rate mode to a fixed rate to maturity and 

treated the premium received by the 

issuer upon resale of the bonds as 

additional sale proceeds for purposes of 

the arbitrage investment restrictions 

under section 148. The final regulations 

adopt this comment. 

One comment pointed out a technical 

discrepancy in the proposed regulations 

under which a bond may be purchased 

pursuant to a qualified tender right by 

the issuer, the issuer’s agent, or another 

party, whereas the bond must be resold 

under the terms of a qualified tender 

right by the issuer or a remarketing 

agent. The comment recommended that 

the final regulations clarify this 

technical issue in the definition of a 

qualified tender right so that the parties 

that may purchase the tendered bond 

(that is, the issuer, the issuer’s agent, or 

another party) are also permitted to 

resell the bond. The comment advised 

against use of the term ‘‘remarketing 

agent’’ on the grounds that the party 

charged with reselling the bond may not 

be an agent of the issuer and the resale 

may be a private placement rather than 

a remarketing. The final regulations 

adopt this comment. 

B. Exceptions to Retirement of a 

Qualified Tender Bond 

A qualified tender bond has two 

features that could result in retirement 

of the bond under the general rules for 

retirement in the proposed regulations. 

First, the existence or exercise of a 

qualified tender right in connection 

with an alteration under the terms of the 

bond could cause the alteration to be a 

modification under § 1.1001–3 and, if 

significant, that modification would 

result in retirement of the qualified 

tender bond under § 1.150–3(b)(1) of the 

proposed regulations. For example, 

when accompanied by a tender right, an 

exercise of the issuer’s option to change 

the interest rate or the interest rate mode 

under the terms of the bond could be a 

modification under the rule in § 1.1001– 

3(c)(2)(iii) for alterations that result from 

the exercise of an option because the 

holder’s resulting right to put the bond 

to the issuer or its agent under the 

qualified tender right upon the interest 

rate conversion could cause the issuer’s 

option to fail to qualify as a unilateral 

option under § 1.1001–3(c)(3)(i). 

Similarly, an issuer may be uncertain as 

to whether the periodic change in 

interest rate that occurs pursuant to the 

terms of a bond operating in a tender 

option mode could be a modification 

under § 1.1001–3 when accompanied by 

a tender right. To address these 

circumstances, the proposed regulations 

provide a special exception that avoids 

retirement by disregarding a qualified 

tender right for purposes of applying 

§ 1.1001–3 to determine whether an 

alteration of a qualified tender bond 

constitutes a significant modification 

under § 1.1001–3 that results in 

retirement of the bond. 

One comment requested that the final 

regulations clarify whether this 

exception applies to a qualified tender 

right arising in connection with any 

alteration of the terms of the bond or 

only to a qualified tender right arising 

in connection with a change in interest 

rate or interest rate mode. The scope of 

the analogous provisions in Notices 88– 

130 and 2008–41 was limited to 

circumstances covering changes in the 

interest rate or interest rate mode only. 

The Treasury Department and the IRS 

intended for this special rule to be 

similarly limited in scope. In response 

to the comment, the final regulations 

clarify that the special rule for 

disregarding a qualified tender right in 

applying § 1.1001–3 to a qualified 

tender bond applies only for the 

purpose of determining whether an 

alteration of the interest rate or interest 

rate mode pursuant to the terms of a 

qualified tender bond results in a 

retirement. The determination of 

whether any other alteration to the 

terms of a qualified tender bond, such 

as a change in maturity or collateral, 

results in a retirement under § 1.150– 

3(b)(1)(i) is made under the general 

rules in § 1.1001–3 without the benefit 

of the special exception in § 1.150– 

3(c)(1), even if the alteration occurs 

contemporaneously with a change in 

interest rate or interest rate mode on the 

bond. 

One comment recommended that the 

final regulations include several 

additional exceptions to the general rule 

under § 1.150–3(b)(1) that a bond is 

retired for purposes of sections 103 and 

141 through 150 when a significant 

modification occurs under § 1.1001–3. 

Specifically, this comment requested 

that the final regulations include a rule 

from Notice 2008–41 that a modification 

that changes the collateral or credit 

enhancement on a nonrecourse taxexempt bond is significant only if the 

change results in a change in payment 

expectations under § 1.1001–3(e)(4)(vi). 

This special rule involved an 

accommodation for circumstances in the 

2008 financial crisis. This comment also 

requested that the final regulations 

retain the exception in Notice 88–130 

for qualified corrective changes. This 

exception from 1988 preceded the 

significant modification standard under 

§ 1.1001–3, which was finalized in the 

1996 final regulations. In most 

circumstances, these qualified 

corrective changes would not be 

significant modifications under 

§ 1.1001–3. Further, a significant 

purpose of the final regulations is to 

improve administrability in a complex 

area of law by integrating the rules for 

retirement of a tax-exempt bond as 

closely as possible with the existing 

rules under § 1.1001–3. Accordingly, the 

final regulations do not adopt these 

comments. 

The second feature of a qualified 

tender bond that could result in 

retirement of the bond under the general 

rules for retirement in the proposed 

regulations is the feature under which 

an issuer or its agent may acquire the 

bond upon the holder’s exercise of the 

qualified tender right. The general rules 

for retirement treat an acquisition of a 

bond by an issuer or an issuer’s agent in 

a manner that extinguishes the bond as 


ddrumheller on DSK120RN23PROD with RULES1
106318 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

a retirement of the bond. To address this 

circumstance, the proposed regulations 

provide an exception under which the 

acquisition of a qualified tender bond 

pursuant to the exercise of a qualified 

tender right will not result in 

retirement, provided that neither the 

issuer nor its agent holds the bond for 

longer than 90 days. One comment 

recommended expanding this special 

rule to cover all tax-exempt bonds rather 

than just qualified tender bonds. This 

exception is limited to qualified tender 

bonds because the rate-setting 

mechanism on those bonds may require 

the issuer or its agent to purchase a 

tendered bond if a buyer for the bond 

cannot be found when the bond is 

tendered. The Treasury Department and 

the IRS have adopted this limited 

exception for the narrowly defined class 

of qualified tender bonds because the 

acquisition of those bonds occurs 

pursuant to the ordinary operation of 

the rate-setting mechanism on those 

bonds. In addition, qualified tender 

bonds represent a significant structured 

type of bonds in the tax-exempt bond 

market tailored to money market fund 

investors and the Treasury Department 

and the IRS have supported this 

structure with accommodating special 

rules consistently in all of the existing 

guidance in this area. Other tax-exempt 

bonds do not rely on this exception for 

the ordinary operation of their ratesetting mechanism. The Treasury 

Department and the IRS decline to 

expand this exception to allow issuers 

to hold their own bonds more generally 

because of concerns regarding the 

implications for the debt 

extinguishment principle. Accordingly, 

the final regulations do not adopt this 

comment. 

One comment recommended 

continuing a special rule from Notice 

2008–41 that modified the definition of 

program investment for purposes of 

arbitrage investment restrictions under 

§ 1.148–1(b). Ordinarily, this definition 

prohibits a conduit borrower of taxexempt bond proceeds from purchasing 

the bonds that financed the conduit loan 

in an amount that is related to the 

conduit loan. Notice 2008–41 modified 

this rule so that a conduit borrower 

could purchase any auction rate bonds 

that financed the conduit loan, provided 

the conduit borrower purchased the 

bonds to facilitate liquidity under 

adverse market conditions. This special 

rule permitted conduit borrowers to buy 

those bonds to address extraordinary 

circumstances in the 2008 financial 

crisis and to increase liquidity at a time 

of market crisis involving the collapse of 

the auction rate bond market and 

downgrades of bond insurers. The 

Treasury Department and the IRS 

decline to extend this special rule 

beyond the conditions under which the 

rule was promulgated. Accordingly, the 

final regulations do not adopt this 

comment. 

C. Additional Exceptions for All TaxExempt Bonds 

The proposed regulations also provide 

an exception to the general rules of 

retirement for all tax-exempt bonds. 

This exception, carried forward from 

Notice 2008–41, provides that 

acquisition of a tax-exempt bond by a 

guarantor or liquidity facility provider 

acting as the issuer’s agent does not 

result in retirement of the bond if the 

acquisition is pursuant to the terms of 

the guarantee or liquidity facility and 

the guarantor or liquidity facility 

provider is not a related party (as 

defined in § 1.150–1(b)) to the issuer. No 

public comments were received on this 

provision. The final regulations adopt 

this provision without change. 

The proposed regulations provide that 

a tax-exempt bond is retired for 

purposes of sections 103 and 141 

through 150 when a significant 

modification occurs under § 1.1001–3. 

Section 1.1001–3(e)(5)(i) generally 

provides that, subject to the special rule 

in § 1.1001–3(f)(7), a modification of a 

debt instrument that results in an 

instrument or property right that is not 

debt for Federal income tax purposes is 

a significant modification. Section 

1.1001–3(f)(7)(ii)(A) generally provides 

that, in determining whether a 

modification of a debt instrument 

results in an instrument or property 

right that is not debt, any deterioration 

in the financial condition of the obligor 

between the issue date of the debt 

instrument and the date of the 

modification is not taken into account. 

One comment recommended that, when 

new bonds are issued and the proceeds 

are used to currently refund outstanding 

bonds, issuers be allowed to apply the 

credit deterioration rule in § 1.1001– 

3(f)(7) to treat the new bonds as a 

continuation of the refunded bonds for 

purposes of sections 103 and 141 

through 150. The Treasury Department 

and the IRS have concluded that there 

is not sufficient justification to expand 

the scope of the final regulations to 

include rules for new issuances of taxexempt bonds. Accordingly, the final 

regulations do not adopt this comment. 

3. Effect of Retirement of a Tax-Exempt 

Bond 

The proposed regulations prescribe 

certain consequences for a bond that is 

retired pursuant to a deemed exchange 

under § 1.1001–3 or retired following 

the acquisition of the bond by the issuer 

or the issuer’s agent. Upon a deemed 

exchange under § 1.1001–3, the bond is 

treated as a new bond issued at the time 

of the significant modification as 

determined under § 1.1001–3. Upon an 

issuer’s acquisition of its own bond, 

absent any special rule, the bond is 

extinguished and retired. One comment 

recommended permitting an issuer that 

purchases its own tax-exempt bond to 

treat the resale of that bond as a 

refunding of the bond extinguished by 

the purchase. The comment suggested 

that the issuer be permitted to allocate 

the proceeds from the resale of the bond 

to the expenditure incurred in the 

purchase of the bond under rules 

similar to the rules for using proceeds 

of tax-exempt bonds to ‘‘reimburse’’ 

previous expenditures under the 

reimbursement expenditure rules in 

§ 1.150–2. Section 1.150–2(g)(1), 

however, specifically prohibits using 

bond proceeds to reimburse 

expenditures incurred in repayment of 

tax-exempt bonds. Modification of the 

reimbursement rules to encompass 

refundings of extinguished and retired 

bonds is beyond the scope of the final 

regulations. The final regulations do not 

adopt this comment. 

4. Applicability Dates 

Under the proposed regulations, the 

final rules would apply to events and 

actions taken with respect to bonds that 

occur on or after the date that is 90 days 

after the date of publication of the final 

regulations in the Federal Register. The 

proposed regulations further state that 

issuers may apply the proposed 

regulations to events and actions taken 

with respect to bonds that occur before 

that date. One comment recommended 

applying the final regulations only to 

bonds issued after the applicability date 

of the final regulations. This comment 

noted that outstanding bonds are 

structured to avoid retirement under the 

existing guidance and potentially might 

not avoid retirement under the final 

regulations. The Treasury Department 

and the IRS are concerned that this 

approach would continue the 

application of the disparate existing 

guidance in this area for a substantial 

period of time for the entire current 

outstanding volume of tax-exempt 

bonds in the municipal bond market. 

The principal goals of the final 

regulations are to unify, clarify, and 

improve the administrability of the 

existing guidance on retirement of taxexempt bonds. The Treasury 

Department and the IRS have 

determined that publishing the final 

regulations without also obsoleting 


ddrumheller on DSK120RN23PROD with RULES1
Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 106319 

Notice 88–130 and Notice 2008–41 

would undermine the unifying and 

streamlining purposes of the final 

regulations. In addition, the final 

regulations and Notice 2008–41 are 

similar and generally should produce 

similar results in most cases outside of 

special circumstances involving the 

2008 financial crisis. Accordingly, the 

final regulations do not adopt this 

comment. 

However, to provide a longer 

transition period for outstanding taxexempt bonds, the final regulations 

provide a period of one year from the 

date the final regulations are published 

in the Federal Register during which 

issuers may continue to apply Notice 

88–130 or Notice 2008–41. As a result, 

the final regulations apply to events 

occurring and actions taken with respect 

to bonds on or after December 30, 2025, 

though an issuer may choose to apply 

the final regulations to events occurring 

and actions taken with respect to bonds 

on or after December 30, 2024. 

Effect on Other Documents 

Notice 88–130 and Notice 2008–41 

are obsolete as of December 30, 2025. 

Special Analyses 

I. Regulatory Planning and Review 

Pursuant to the Memorandum of 

Agreement, Review of Treasury 

Regulations under Executive Order 

12866 (June 9, 2023), tax regulatory 

actions issued by the IRS are not subject 

to the requirements of section 6 of 

Executive Order 12866, as amended. 

Therefore, a regulatory impact 

assessment is not required. 

II. Regulatory Flexibility Act 

Pursuant to the Regulatory Flexibility 

Act (RFA), it is hereby certified that 

these final regulations will not have a 

significant economic impact on a 

substantial number of small entities. 

The final regulations affect State and 

local governments that issue tax-exempt 

bonds. States are not considered small 

entities for purposes of the RFA but 

small governmental jurisdictions 

(jurisdictions with populations less than 

50,000) are considered small entities. 

The Treasury Department and the IRS 

do not have data on how many small 

governmental jurisdictions may be 

affected by these regulations, but it may 

be a substantial number. 

Even if a substantial number of small 

entities are affected, the economic 

impact of these regulations will not be 

significant. These final regulations 

consolidate and clarify the existing 

guidance on retirement and reissuance 

of tax-exempt bonds published in 

Notices 88–130 and 2008–41. Therefore, 

these final regulations will not create 

additional obligations for, or impose an 

economic impact on, a substantial 

number of small entities. Accordingly, a 

regulatory flexibility analysis is not 

required. 

Pursuant to section 7805(f) of the 

Code, the notice of proposed rulemaking 

preceding this regulation was submitted 

to the Chief Counsel for the Office of 

Advocacy of the Small Business 

Administration for comment on its 

impact on small governmental 

jurisdictions and no comments were 

received. 

III. Unfunded Mandates Reform Act 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

requires that agencies assess anticipated 

costs and benefits and take certain other 

actions before issuing a final rule that 

includes any Federal mandate that may 

result in expenditures in any one year 

by a State, local, or Tribal government, 

in the aggregate, or by the private sector, 

of $100 million in 1995 dollars, updated 

annually for inflation. These regulations 

do not include any Federal mandate that 

may result in expenditures by State, 

local, or Tribal governments, or by the 

private sector in excess of that 

threshold. 

IV. Executive Order 13132: Federalism 

Executive Order 13132 (Federalism) 

prohibits an agency from publishing any 

rule that has federalism implications if 

the rule either imposes substantial, 

direct compliance costs on State and 

local governments, and is not required 

by statute, or preempts State law, unless 

the agency meets the consultation and 

funding requirements of section 6 of the 

Executive order. The final regulations 

do not have federalism implications and 

do not impose substantial direct 

compliance costs on State and local 

governments or preempt State law 

within the meaning of the Executive 

order. 

V. Congressional Review Act 

Pursuant to the Congressional Review 

Act (5 U.S.C. 801 et seq.), the Office of 

Information and Regulatory Affairs 

designated this rule as not a major rule, 

as defined by 5 U.S.C. 804(2). 

Statement of Availability of IRS 

Documents 

Any IRS Revenue Procedure, Revenue 

Ruling, Notice, or other guidance cited 

in this document is published in the 

Internal Revenue Bulletin (or 

Cumulative Bulletin) and are available 

from the Superintendent of Documents, 

U.S. Government Publishing Office, 

Washington, DC 20402, or by visiting 

the IRS website at https://www.irs.gov. 

Drafting Information 

The principal author of these 

regulations is Zoran Stojanovic of the 

Office of Associate Chief Counsel 

(Financial Institutions and Products). 

However, other personnel from the 

Treasury Department and the IRS 

participated in their development. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Adoption of Amendments to the 

Regulations 

Accordingly, 26 CFR part 1 is 

amended as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 continues to read in part as 

follows: 

Authority: 26 U.S.C. 7805 * * * 

■ Par. 2. Section 1.150–3 is added to 

read as follows: 

§ 1.150–3 Retirement standards for state 

and local bonds. 

(a) General purpose and scope. This 

section provides rules to determine 

when a tax-exempt bond is retired 

solely for purposes of sections 103 and 

141 through 150 of the Internal Revenue 

Code (Code). 

(b) Retirement of a tax-exempt bond— 

(1) General rules. Except as otherwise 

provided in paragraph (c) of this 

section, a tax-exempt bond is retired 

when: 

(i) A significant modification of the 

bond occurs under § 1.1001–3; 

(ii) The issuer or its agent acquires the 

bond in a manner that extinguishes the 

bond; or 

(iii) The bond is otherwise redeemed 

(for example, redeemed at maturity). 

(2) Elective retirement. In guidance 

published in the Internal Revenue 

Bulletin (see § 601.601(d)(2)(ii)(a) of this 

chapter), the Commissioner may set 

forth specific circumstances under 

which an issuer may elect to treat a taxexempt bond as retired for purposes of 

sections 103 and 141 through 150 of the 

Code. 

(c) Exceptions to general rules for 

retirement of a tax-exempt bond—(1) 

Qualified tender right disregarded for 

certain purposes. In applying § 1.1001– 

3 to a qualified tender bond for 

purposes of paragraph (b)(1)(i) of this 

section, both the existence and exercise 

of a qualified tender right are 

disregarded for purposes of determining 

whether an alteration of the interest rate 


ddrumheller on DSK120RN23PROD with RULES1
106320 Federal Register / Vol. 89, No. 249 / Monday, December 30, 2024 / Rules and Regulations 

or interest rate mode that occurs 

pursuant to the terms of the bond is a 

modification. Thus, an issuer’s exercise 

of an option to alter the interest rate or 

interest rate mode on a qualified tender 

bond generally is not a modification 

under § 1.1001–3 because the alteration 

occurs by operation of the terms of the 

bond and the holder’s resulting right to 

put the bond to the issuer or the issuer’s 

agent pursuant to the disregarded 

qualified tender right does not prevent 

the issuer’s option from qualifying as a 

unilateral option under § 1.1001–3(c)(3) 

that would not give rise to a 

modification. 

(2) Acquisition pursuant to a qualified 

tender right. An acquisition of a 

qualified tender bond by the issuer or its 

agent does not result in the retirement 

of the bond under paragraph (b)(1)(ii) of 

this section if the acquisition is 

pursuant to the operation of a qualified 

tender right and neither the issuer nor 

its agent continues to hold the bond 

after the close of the 90-day period 

beginning on the date of the tender. 

(3) Acquisition of a tax-exempt bond 

by a guarantor or liquidity facility 

provider. An acquisition of a tax-exempt 

bond by a guarantor or liquidity facility 

provider acting on the issuer’s behalf 

does not result in the retirement of the 

bond under paragraph (b)(1)(ii) of this 

section if the acquisition is pursuant to 

the terms of the guarantee or liquidity 

facility and the guarantor or liquidity 

facility provider is not a related party 

(as defined in § 1.150–1(b)) to the issuer. 

(d) Effect of retirement. If a bond is 

retired pursuant to paragraph (b)(1)(i) of 

this section (that is, in a transaction 

treated as an exchange of the bond for 

a bond with modified terms), the bond 

is treated as a new bond issued at the 

time of the modification as determined 

under § 1.1001–3. If the issuer or its 

agent resells a bond retired pursuant to 

paragraph (b)(1)(ii) of this section, the 

bond is treated as a new bond issued on 

the date of resale. The rules of § 1.150– 

1(d) apply to determine if the new bond 

is part of a refunding issue. 

(e) Definitions. For purposes of this 

section, the following definitions apply: 

(1) Issuer means the State or local 

governmental unit (as defined in 

§ 1.103–1) that actually issues the taxexempt bond and any related party (as 

defined in § 1.150–1(b)) to the actual 

issuer (as distinguished, for example, 

from a conduit borrower that is not a 

related party to the actual issuer). 

(2) Qualified tender bond means a taxexempt bond that, pursuant to the terms 

of the bond, has all of the following 

features: 

(i) During each authorized interest 

rate mode, the bond bears interest at a 

fixed interest rate, a qualified floating 

rate under § 1.1275–5(b), or an objective 

rate for a tax-exempt bond under 

§ 1.1275–5(c)(5); 

(ii) Interest on the bond is 

unconditionally payable (as defined in 

§ 1.1273–1(c)(1)(ii)) at periodic intervals 

of no more than one year; 

(iii) The bond has a stated maturity 

date that is not later than 40 years after 

the issue date of the bond; and 

(iv) The bond includes a qualified 

tender right. 

(3) Qualified tender right means a 

right or obligation of a holder of a taxexempt bond pursuant to the terms of 

the bond to tender the bond for 

purchase as described in this paragraph 

(e)(3). The purchaser under the tender 

may be the issuer, its agent, or another 

party. The tender right is available on at 

least one date before the stated maturity 

date. For each such tender, the purchase 

price of the bond is equal to par (plus 

any accrued interest). Following each 

such tender, the issuer, its agent, or 

another party either redeems the bond 

or uses reasonable best efforts to resell 

the bond within the 90-day period 

beginning on the date of the tender. 

Upon any such resale, the resale price 

of the bond is equal to the par amount 

of the bond (plus any accrued interest), 

except that, if the tender right is 

exercised in connection with a 

conversion of the interest rate mode on 

the bond to a fixed rate for the 

remaining term of the bond, the bond 

may be resold at any price, including a 

premium price above the par amount of 

the bond or a discount price below the 

par amount of the bond (plus any 

accrued interest). Any premium 

received by the issuer pursuant to such 

a resale is treated solely for purposes of 

the arbitrage investment restrictions 

under section 148 of the Code as 

additional sale proceeds of the bonds. 

(f) Applicability date—(1) General 

applicability. This section applies to 

events occurring and actions taken with 

respect to bonds on or after December 

30, 2025. 

(2) Permissive applicability. An issuer 

may choose to apply this section to 

events occurring and actions taken with 

respect to bonds on or after December 

30, 2024. 

■ Par. 3. Section 1.1001–3 is amended 

by revising paragraph (a)(2) to read as 

follows: 

§ 1.10011.1001–3 Modifications of debt 

instruments. 

(a) * * * 

(2) Tax-exempt bonds. For special 

rules governing whether tax-exempt 

bonds are retired for purposes of 

sections 103 and 141 through 150 of the 

Internal Revenue Code, see § 1.150–3. 

* * * * * 

Douglas W. O’Donnell, 

Deputy Commissioner. 

Approved: December 8, 2024. 

Aviva R. Aron-Dine, 

Deputy Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. 2024–30267 Filed 12–27–24; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 165 

[Docket Number USCG–2024–0205] 

RIN 1625–AA11 

Regulated Navigation Area; Port of 

Miami, Miami, FL 

AGENCY: Coast Guard, DHS. 

ACTION: Final rule. 

SUMMARY: The Coast Guard is 

establishing a regulated navigation area 

for certain waters surrounding the Port 

of Miami. This action is necessary to 

enhance the protection of high-risk 

vessel and port operations while 

reducing navigational hazards to 

waterway users and mariners by 

controlling vessel speeds. This rule will 

establish a slow speed zone throughout 

Fisherman’s Channel and the Main Ship 

Channel for vessels less than 50 meters 

in length. 

DATES: This rule is effective January 29, 

2025. 

ADDRESSES: To view documents 

mentioned in this preamble as being 

available in the docket, go to https://

www.regulations.gov, type USCG–2024– 

0205 in the search box and click 

‘‘Search.’’ Next, in the Document Type 

column, select ‘‘Supporting & Related 

Material.’’ 

FOR FURTHER INFORMATION CONTACT: If 

you have questions about this rule, call 

or email Mr. David Lieberman, District 

7 Dpw, U.S. Coast Guard; telephone 

(206) 827–3637, email 

David.L.Lieberman2@uscg.mil. 

SUPPLEMENTARY INFORMATION: 

I. Table of Abbreviations 

CFR Code of Federal Regulations 

COTP Captain of the Port 

DHS Department of Homeland Security 

FR Federal Register 

LNG Liquified Natural Gas 

NAVCEN Coast Guard Navigation Center 

NOI Notice of Intent 


ddrumheller on DSK120RN23PROD with RULES1